Protecting Your Home from Creditors in Massachusetts

Some of my clients are concerned about the possibility of losing their homes to creditors. The following are some of the ways which can help you protect your home from being sold to satisfy debts owed to creditors.

(1) If you are married and you acquired title to your home before February 11, 1980, you are likely missing out on the protection from creditors that the new “tenancy by the entirety” law could give you. Under the new law, each spouse’s right to live in the home is generally protected from a lawsuit against the other spouse. If you are now under the old law, you can make a simple legal election to be brought under the new law.

(2) A document known as a “declaration of homestead” can protect the home (including a mobile home) to the value of $500,000.00 against lawsuits by many creditors; persons who are disabled or at least 62 years of age are each eligible to protect the home for an additional value of $500,000.00. (These figures increased on October 26, 2004.) Married couples may also be able to utilize more than one of these homestead exemptions by “stacking” them appropriately.

(3) You should make sure that you are properly insured to cover the possibility of motor vehicle accidents, as a lawsuit against you could result in the injured party coming after all of your assets. The “underinsured” and the “uninsured” sections of your automobile insurance policy allow you or injured family members to receive compensation for injuries in an accident if the driver who hits you does not carry enough insurance. You should strongly consider raising your coverage under both sections to at least $100,000/$300,000, according to at least one a personal injury law specialist. As for coverage for an accident caused by the person driving your own vehicle, family caregivers who are concerned about whether elderly relatives should still be driving should pay especial attention to this insurance issue, as it is often an accident that finally cause an elderly driver to give up driving.

(4) You should make sure that your home is properly insured (within your means, of course). Just as in the cased of not being sufficiently covered for motor vehicle accidents, if your homeowners insurance is insufficient you could conceivably lose your home if a lawsuit against you resulted in a judgment in excess of your limits of coverage. You may wish to look into the possibility of obtaining a so-called “umbrella” policy to protect you from various lawsuits. These policies require certain minimum levels of coverage under your homeowners and automobile insurance policies, but are otherwise relatively inexpensive. An additional advantage of an umbrella policy is that on a very large claim against you, the insurance company is paying for the costs of legal defense.

(5) Establishing a trust to hold your home rarely helps. You may have to give up more control over the home than you would wish, and you almost always lose the protection that a tenancy by the entirety or declaration of homestead would give you. A creditor of yours (including the state Medicaid program, if you are concerned about losing your home due to the impact of nursing home costs) will always be able to break through a revocable trust, so the trust would have to be irrevocable to give you any sort of protection. The free “living trust” seminars regularly promoted in newspapers and via direct mail conveniently ignore this issue, probably because it could get in the way of the attempted sale.

(6) If it is too late to take any of the preventative steps suggested above, or if you are in financial distress and cannot afford to pay your home’s mortgage loan, you still have some options available to you. If you do not ignore requests for payment and you are prepared to meet financial problems head on, you may be able to work out a repayment plan with your bank. In some cases, a refinance and/or debt consolidation may work to your advantage. If your financial problems are severe, filing bankruptcy, as a last resort, may also help you protect some of your assets, including your home. If any of these issues apply to you, a bankruptcy lawyer is the appropriate type of law specialist to consult.